Income Tax: Sweeten the Bitter Pill
![]()
Saving a good part of your income and lowering the tax thereon are like two sides of the same coin, and this is a scenario that is repeated every year for citizens paying taxes. A wise and calculated plan right from the beginning really helps in lowering taxes on income. The Government of India has provided for ways to lower taxes through planned and calculated savings. So, a person should keep in mind all the provisions while taking decisions on saving taxes. The most popular amongst them is Section 80C, which allows income tax exemptions to individuals on making investments in certain instruments. Therefore, first of all, try to exhaust the quota for Section 80C. The maximum limit to claim deduction under this section is Rs 1 lakh.
“Provisions under Section 80C consist of payments/investments in life insurance premiums, PF contributions, ULIPS, five-year tax saving term deposits, tuition fees for children, housing loan repayment on account of principal component of housing loan, NSCs and so on”, says Ajay Goel, Managing Partner, Vijay K Goel & Co. However, the Income Tax Act provides for a number of other deductions in addition to Section 80C, which one can use to save on taxes. These deductions have been provided under sections 80CCF, 80D, 80DD, 80DDB, 80E, 80G, 80U and Section 24(1)(vi).
“Like most other things in finance, tax planning is also important in financial planning. Under the Income Tax Act, 1961, first of all income under each head is computed, and the aggregate is known as ‘gross total income’. Certain deductions are allowed for this gross total income in the nature of investments or for certain personal expenditure”, says Varun Jani, financial planner.
Available Options
The Ministry of Finance has, in fact, laid out various options for a common man to opt for, as far as saving tax is concerned. These deductions are either for certain savings or for certain personal expenditures. Savings-based deductions are available under sections 80C (investment towards life insurance, PF, etc.), 80CCC (for pension fund) and 80CCD (pension scheme of the central government), while the deductions based on personal expenditure are available under sections 80D (medical insurance), 80DD (medical treatment for disabled dependent), 80DDB (medical treatment for specified diseases), 80E (repayment of loan taken for higher education) and 80GG (deduction for rent paid). There also are certain deductions for social activities like 80G, which is for donations to certain funds, charitable institutions and so on.
Let’s take a look at all these provisions in detail, and see what items they include.
Section 80CCF
Up to Rs 20000 on investments towards approved infrastructure bonds.
An individual can invest an amount of up to Rs 20000 in infrastructure bonds, and can claim the same as a deduction from his/her taxable income in addition to the Rs 100000 deduction that is available under Section 80C. These bonds are listed on a stock exchange, and come with a lock-in period. Individuals cannot sell them before the lock-in period expires. Examples of such bonds include those issued by IDFC, REC and so on.[PAGE BREAK]
Section 80D Up to Rs 30000 on payments towards medical insurance premium. Under Section 80D of the Income Tax Act, a deduction of up to Rs 30000 is allowed in respect of premium paid by cheque towards a health insurance policy, as for example, Mediclaim. This premium can be paid towards the health insurance of spouse and dependent children, for an amount up to Rs 15000, and of dependent parents for an amount up to Rs 15000. In case an assessee’s parents are senior citizens, a deduction of up to Rs 20000 is available. However, if an individual already has a Mediclaim policy, then investing further in a Mediclaim policy just to save on Income Tax is not advisable.
Section 80DD Up to Rs 100000 on payments towards medical expenditure for disabled dependents. Section 80DD of the Income Tax Act provides for tax deduction if an individual incurs medical expenditure for dependents (be it spouse, children, brothers, sisters) who are disabled. Exemption granted for expenditure made for a disabled dependent on medical treatment/training/rehabilitation also includes the insurance premium paid towards the maintenance of such dependants.
The maximum amount of deduction available is Rs 50000 in case of normal disability and Rs 1 lakh in case of severe disability.
Section 80DDB Rs 60000 on payment for treatment of specified illnesses. Any amount incurred for the treatment of specified illnesses is available as a deduction from taxable income under section 80DDB. For individuals below 65 years of age, the deduction limit is of Rs 40000, while for senior citizens, the limit is Rs 60000. The deduction is applicable for treatment of self, and spouse, children, siblings and parents, if wholly dependent on the assessee. Diseases covered under this pro-vision include neurological diseases, Parkinson’s, malignant cancers, Acquired Immune Deficiency Syndrome (AIDS), chronic renal failure, haemophilia, thalassaemia and so on. One needs to check the full section and the sub-sections in relation to this section in order to check if the relevant disease is covered under it.
Section 80E Deduction in respect of repayment of loan taken for higher education. Under section 80E of The Income Tax Act, any amount of interest paid on an educational loan taken for the higher education of the assessee’s spouse or children is deductible from the assessee’s taxable income. Higher education means studies for any graduate or post-graduate course in engineering, medicine, management or post-graduate course in applied sciences or pure sciences, including mathematics and statistics. Deduction is allowed for the payment of the interest component of the higher education loan. All education after Class XII is taken into consideration, either vocational or full-time, given that the school/institute/university is recognised by the government.
[PAGE BREAK]
Section 80G
Contributions/payments towards donations.
Under this section, donations made to the Prime Minister’s Relief Fund, National Children Foundation or any university or educational institution of ‘national eminence’ are deductible from the taxable income of the assessee. Any contribution to exempt charities (50-100 per cent), depending on the charity and as per approval, is also included.
Section 80U
Deduction in the case of a person with disability.
This deduction is allowed in case of a person with disability. Any individual, who is suffering from a permanent disability or is mentally challenged, as specified in the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995, or the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999, shall be allowed a deduction of Rs 50000, and in case of severe disability (having any disability of over 80 per cent) the deduction is Rs 100000. The assessee needs to furnish a certificate from a medical board constituted by either the central or the state government, along with the return of income for the year for which the deduction is claimed.
Section 80QQB
Deduction in respect of royalty income from books.
Such a deduction is applicable for a resident individual who is an author. The assessee has to furnish a certificate in the Form 10CCD from the person responsible for making such payment, along with the return of income. If any of the stated conditions are satisfied, then either the whole of such income or Rs 300000 is available for deduction.
Section 80RRB
Deduction in respect of royalty income from patents.
This is for any resident individual being a patentee in receipt of any income by way of royalty in respect of a patent registered on or after April 1, 2003, under the Patents Act, 1970. The assessee shall furnish a certificate in the Form 10CCE from the person responsible for making such payment, along with the return of income. Income earned outside India should be remitted within six months from the end of the relevant previous year, or within any extended time provided by the RBI. If the aforesaid conditions are satisfied, then either the whole of such income or Rs 300000 is available for deduction.
Others
1) Contribution made by a company to any superannuation fund of up to Rs 100000 is tax free in the hands of the employee.
2) Conveyance/transport allowance given to an employee is tax free up to Rs 9600 per annum or Rs 800 per month. No bills are required to be submitted.
[PAGE BREAK]3) Medical allowance given to an employee is tax free up to Rs 15000 per annum (bills required).
4) House rent allowance (HRA) given to an employee is tax free up to a minimum value of the following (when an employee can produce rent paid receipts from a landlord for the period):
- Up to 50 per cent of the annual basic pay in case of metros (40 per cent in case of non-metros)
- Rent paid (10 per cent of the annual basic)
5) Profession tax deducted from an employee’s salary is available as a deduction from the taxable income.
“Avoiding paying income tax is a crime, and such violators are punishable, whereas lowering the tax is not a crime with wise and justifiable investments, as both saving and lowering of the tax options have been offered by the government”, says K K Maloo, Managing Partner, Maheshwari & Co.